A lot is at stake for Europe’s energy security if political correctness ends up imposing one technology over the other, Director General of FuelsEurope John Cooper told EURACTIV.com.
FuelsEurope represents the interests of 42 Companies operating refineries in the EU. Members account for almost 100% of EU petroleum refining capacity and more than 75% of EU motor fuel retail sales. Before joining FuelsEurope, Cooper worked for BP.
In a wide-ranging interview with EURACTIV.com’s Senior Editor Georgi Gotev, Cooper said:
- FuelsEurope is calling on regulators not to make European refineries uncompetitive, because refiners don’t want to pass the cost on to customers;
- It makes sense for Europe to keep products made in Europe, under European regulations. That’s good for European business, and good for the environment;
- One of the likely outcomes from mass electrification is that some European refiners may not survive;
- The total revenue from fuel taxes in Europe is €270 billion a year – a huge source of income for national budgets;
- Petrol and diesel cars under Euro-6D certificate are not “dirtier” than electric cars;
- Only 1% of the production of batteries for electric vehicles will be in Europe.
What’s new in the refinery industry? A fire in a Dutch refinery recently showed how dependent Europe is on imported diesel fuel…
Actually Europe has been importing diesel fuel for many years, at least ten years. The overall picture of trade for the industry in Europe is that around 25% of diesel has been supplied from outside of Europe, most of that being Russia and the US, but some also coming from the Middle East. And gasoline has typically been exported, mainly to the US, but also to China.
Are there big differences between vehicles in the US and in Europe, in terms of US trucks, for instance, using gasoline rather than diesel?
In the US there is a break around five tonnes on vehicles, light commercial vehicles, pick-up trucks and smaller delivery trucks run on gasoline, and everything above that is diesel. But that means that the gasoline market, in terms of proportion, is much bigger in the US. In Europe, basically every commercial vehicle is diesel, even the smallest vans. And also since around 2000 in many countries of Europe a significant part of the passenger car fleet is also converted to diesel. This varies from 50% in certain countries. Like the UK, the highest levels being in Portugal and Spain, around 80%.
But isn’t this changing? Isn’t there an attitude that diesel should be scaled down?
There is, and the reasons are around cost and technology. Regulations for cars in the EU are set by the European Commission and have been progressively tightened, since their introduction in the late 1990s. We are now at a class of regulation which is the Euro-6 level. This level is very tight on emission standards. Both gasoline and diesel cars require modifications and after-treatment of the exhaust gas. After the engine the exhaust gas goes through catalytic converters and filters to reduce the emission of pollutants.
And the equipment needed for diesel has got more expensive…
Exactly. The after-treatment is a lot more expensive on a diesel car than it is for gasoline. I’ve heard estimates that it could be €1,500 per car. On a gasoline car it’s less than €500, maybe €300. And what that means is that for the smaller cars it may no longer be attractive to buy a diesel car. If you think of a car of the size of a Volkswagen Polo, if the diesel version is €2,000 more, many people will decide to buy the gasoline version, because it would take a long time to recover that cost.
Unless they drive more than 30,000 km a year…
Yes. And in addition there is a tendency to narrow the gap in taxation between diesel fuel and gasoline, and this doesn’t make the diesel version as attractive as it was before. And also the fuel economy of the gasoline engines is also getting better now. So the reasons are less to buy diesel versus petrol, particularly for the smaller car class.
I will ask you also about electric cars, but returning to my first question: imported diesel sounds like more expensive diesel, or am I wrong? Why is Europe not self-sufficient in refined fuel? Does it mean that refineries in Europe are not competitive?
It’s a good question. I mentioned that diesel typically comes from Russia, the US and sometimes the Middle East. There is a key thing in common for these three regions of the world: they all have cheap energy, cheap gas. Sixty percent of the cost for running the refinery is the energy. So the refineries in these regions are very competitive. It means they can match the prices in Europe even after they have paid for transport. And the other thing they don’t have is the regulatory cost European refineries have to bear.
Let’s talk about that.
Those costs are ETS costs and also costs for meeting refinery air quality requirements. There are requirements for industrial emissions in Europe. And meeting those requirements is becoming more expensive. We believe refineries in Russia, in the Middle East and the US do not have such costs. There is some regulation on air quality in the US, but we believe their cost is lower.
Does it mean the refinery business in Europe is doomed?
It means that European refineries will have to invest in efficiency, as well on meeting the requirements for air quality and CO2 emissions, to reduce ETS costs. Shipping transportation costs from other regions of the world to Europe always gives a little bit of protection. Pipeline transportation is very cheap. As long as you meet markets using mostly pipeline transportation, we think European refineries can be competitive, but we’ve been very clear with the regulator: they need to minimise the compliance costs, for ETS for example.
What does fair ETS mean for your industry?
The key concept about ETS is that it is a cost imposed on European refiners, but it is not imposed on refiners outside of Europe who supply their product to Europe. What we say to the regulator is: please don’t make us uncompetitive, by putting high costs on us, because we cannot pass those costs to the customer.
In the case of diesel, of which 25-30% is imported, the importers who don’t have that cost become the most competitive suppliers. So the most important concept for us in ETS is that the Commission recognised that competitive challenge, and may have this system of giving some free allowances to industries that are exposed to competition from imports. And that is really where all the discussion around ETS revolves.
The 10% best refineries need to have 100% free allocation. And if the Commission recognises the best refineries, those that are not the best will have costs to pay for the ETS tickets, but that gives them an incentive to get close to that “best in class performance”, which is what the Commission wants.
Another point that we make is that the European refineries have some of the lowest emissions in CO2, because they already invested a lot in efficiency. If Europe imports its products from refineries outside, the total CO2 emissions is higher, but those emissions are outside European regulation. What we say is: it makes sense for Europe to keep its products made in Europe, made under European regulation, that’s good for European business, and it’s good for the environment, because it has the lowest emissions.
Petrol and diesel are heavily taxed. How about electric cars?
The total revenue from fuel taxes is €270 billion a year. It’s a huge source of income. One of our points about electric cars is that so far, they haven’t shown an ability to be taxable in the same way. If you are filling your car with petrol and you are doing 15,000 km a year, you are probably paying the government at least €1,000 a year in taxation. And that is to reflect that you are using the roads, the government has to put a lot of infrastructure in place, police, bridges, road maintenance, and it’s also general revenue. The electric car has the same needs, and one way of looking at it is to say: if you have a petrol car and your neighbour has an electric car, is it fair that you pay the €1,000 and he does not?
But what will governments do if the fleet change to electric cars, those billions would be lost for the governments?
I believe people are increasingly realising this situation is not sustainable for the long term.
It means that today, electric cars are heavily subsidised.
They are. In some countries they also receive a grant to go on the road, maybe €5,000. And there is also evidence that car makers are selling them below cost.
Let’s imagine 2040 with lots of electric cars everywhere. What does it mean for your industry?
For sure it means lower volume demand for road transport. There are some unknowns about what happens with commercial and heavier commercial vehicles, but in 2040 we expect still liquid fuel demand for commercial transport, aviation, marine, petrochemicals. But the possibility is that gasoline demand will be very sharply reduced. The challenge for that is that many of the refineries have high gasoline production. If there is no market in Europe, it means there is no margin in making gasoline. It would be very damaging to the competitiveness of many European refineries. Some have invested a lot to produce a larger proportion of diesel. They are better prepared for that world.
We are faced with the prospect that more and more of the demand in Europe will be diesel, and gasoline will go down. That means that some refiners may not survive in that environment. It may mean that Europe may not meet diesel fuel, or jet fuel, or marine fuel demand, and more of that will have to be imported. Because if you are closing the refinery because you have no market for the gasoline, you are also losing the diesel production as well.
This is one of the likely outcomes from mass electrification. We believe the regulators should consider this, because of the consequences for the energy security of Europe.
But couldn’t we imagine that petrol and diesel cars could become as “clean” as electric cars?
This is already happening. Just at the beginning of this month there was a new development. Within Euro-6 there are different categories, and we are now at Euro-6D. This is the first time when car makers have been required to show that their cars fully meet the requirements in what is called real driving emission. The previous way was using a laboratory drive cycle.
Which lost credibility after Dieselgate.
But this is an important change. We believe, as more of these cars come onto the road, and the old cars disappear, the air quality problem in our cities will be solved. The air standards in Europe are similar to those in the US and Japan. Japan doesn’t have air quality problems in Tokyo or any other cities. They have tight emission standards and they really obey them.
So why push for electric cars if the air quality problem has been solved?
The vision for electrification in Europe is about three things. It’s about zero CO2 emissions, secondly about air quality and thirdly about energy security and having to avoid fossil fuels. But an electric vehicle is not really zero-carbon, because there is a lot of manufacturing around that. And then the mining, of copper, lithium, cobalt. I’ve read that in order to extract one tonne of copper you need to extract 500 tons from the earth.
But the European public sees the electric car as clean…
The European regulation for cars only looks at the exhaust pipe. This is misleading. As petrol and diesel cars get more efficient, they get closer to the true lifecycle emission of an electric car. That’s one of our key points: we should continue to develop petrol and diesel engines, because they are actually competitive. The public has been a little been misled.
And regarding the particle pollution, with modern technologies it no longer comes from diesel, but from brake and tyre dust. But electric cars also have brakes and tyres.
You mentioned energy security…
The Financial Times had several articles recently about where is battery production in the world. And they predicted that in 2020 84% of battery production for cars will be in China, and almost all the rest will be in US and South Korea. Only 1% will be in Europe. The politicians think we are moving away from import dependency. But we are moving from crude oil dependency to battery dependency. Almost all of the cobalt in the world comes from Congo. How many suppliers of crude oil in the world? At least sixty countries.
So we are advising caution, and we also think we should support technologies like more efficient cars.
There is a lot of talk about the Energy Union. Do you think the Commission is on top of things?
The Energy Union at the moment is focused particularly on trying to get a single market for gas and electricity across Europe, and increasing the supply of gas in particular into Europe. There is a particular interest in importing LNG from the US, so that there would be options to have gas from Russia, from the US, and possibly from the Middle East as well.
The Commission has understood that for industry, energy costs are absolutely key to be competitive, for all energy-intensive industries, not only refining, but steel, cement, aluminium, other metals, glass, paper etc. They need to have competitive costs to be world players. So we welcome that the Commission has taken that as part of the Energy Union. And it is very much their wish, and our hope, that our energy costs get closer to those of the US in particular.
We do support targets to support carbon emissions. We said as an industry, all our members have agreed, we must support the Paris Agreement. But we don’t support picking one technology and saying this is the only solution. We should work hard to develop everything that can be used to reduce the emissions in transport, and also other sectors as well. But again – we don’t support a sector approach when we pick one technology and say: this is the winner, we have to impose this.
But political correctness dominates.
We’ll challenge that, with good science and facts.